Augustin K. Fosu
Introduction
More is known about the African development experience than ever before, due mainly to the sustained research effort over many years. The extant literature has offered a large set of explanations of why African growth and development generally appears to have historically lagged behind that of other regions of the developing world (Sachs and Warner 1997; Collier and Gunning 1999; Azam et al. 2002; Ndulu et al. 2008a, 2008b). These explanations include: conflicts; inadequate levels and poor use of foreign aid; bad policy environments; poorly performing institutions; limited export supply response capacities; a lack of physical infrastructure; poor political leadership and corruption; a lack of fiscal discipline; low levels of human capital; drought and other adverse climatic problems; brain and talent drains; ineffective structural adjustment programs; limited membership in international networks; and inadequate levels of foreign direct investment. The United Nations University World Institute for Development Economic Research (UNU-WIDER) project ‘African Development: Myths and Realities’ has sought to focus on a subset of these explanations, in an attempt to distil ‘myths’ and ‘realities’ in the light of current knowledge. The present volume focuses on two related subject areas: growth and institutions.
In this chapter, I first present evidence on how African countries as a whole have performed on growth and institutions during post-independence. Next is information on trends in development outcomes in the region. Finally, I present an overview of the chapters covered in the current book. The coverage of the book strives to provide a comprehensive analysis of how Africa’s development may have been enhanced or undermined, with specific reference to growth and institutions. By so doing, the book is able to draw important lessons for the future.
Growth, institutions and development outcomes
Growth
It is now well accepted that economic growth is a critical element for development. For example, growth has been the main engine for poverty reduction globally (Dollar and Kraay 2002; Fosu 2011). This finding is corroborated for African economies also (Fosu 2014). Furthermore, growth is found to provide the major explanation for improvements in human development in African countries (Fosu 2002, 2004). Thus there is a need for re-emphasizing economic growth in the African region, consistent with the general extant literature.
There is solid evidence of growth resurgence in African countries, especially since the mid-1990s. As Figure 1.1 shows, the gross domestic product (GDP) growth of sub-Saharan Africa (SSA)1 has resurged and trended upwards since the dismal performance in the 19080s and early 1990s. Furthermore, since 2002 Africa’s growth has exceeded the world’s, which must happen if the region is to catch up with the rest of the world (ROW).
On a per capita basis, however, the recent economic growth resurgence does not appear as impressive (Figure 1.2), bringing into focus the need to limit population growth to more reasonable levels. We could, of course, await the more natural demographic transition as incomes grow, but that process may take much too long. Besides, unless productivity continues to rise sustainably in the region, via increased adoption of technology for instance, this transition may be quite far off, and any economic catch-up could be much delayed.
As in ROW, Africa’s growth unfortunately turned substantially downward during the recent economic crisis of 2008–2009: ‘SSA’s GDP growth fell by over 60 per cent between 2007 and 2009’ (Fosu 2013a: 1102). However, along with ROW, the region has recovered reasonably well. Indeed, Africa has demonstrated resilience relative to ROW during this crisis and better than any other time during post-independence. Such resilience is attributed in significant part to improvements in governance and/or institutions (Fosu 2013a). Continued attention must, therefore, also be paid to institutions going forward.
Figure 1.1 Gross domestic product (GDP) percentage annual growth for sub-Saharan Africa (SSA) compared with the rest of the world (ROW) 1961–2012
Figure 1.2 Per capita gross domestic product annual growth for sub-Saharan Africa (SSA) compared with the rest of the world (ROW) 1961–2012
Institutions
The role of institutions in development has become increasingly prominent in the literature. For example, the Washington Consensus that formed the basis for economic reforms in many African countries is often faulted for not having incorporated institutional reforms. This criticism led to subsequent modifications, resulting in the ‘second-generation’ reforms. Rodrik (2006, Table 1) for instance proposed the ‘augmented Washington Consensus’ to prominently include institutional measures. In his seminal work, North (1990) showed the dynamic importance of institutions in economic performance. Indeed, the new institutional economics (NIE) projects the supremacy of institutions over most impediments to development (Rodrik et al. 2004; Acemoglu et al. 2005; see Haggard et al. 2008 for an extensive review). Consistent with the NIE, Bates et al. (2013) find that recent institutional development in Africa has significantly contributed to the improved performance of African economies.
And, in a major research project undertaken by the African Economic Research Consortium (AERC), institutions receive considerable attention in explaining the growth performance of African economies. It attributes in large part the poor growth in the 1980s and early 1990s to weak institutions, and conversely the growth resurgence more recently to improved institutions (Ndulu et al. 2008a, 2008b).
For example, economic freedom (EF) as a measure of economic governance has improved appreciably (Figure 1.3), from a value of 4.5 in 1980 to 6.2 in 2010 (range: 0–10),2 with positive implications for economic growth (Haan and Sturm 2000). As an indicator of political governance, the index of electoral competitiveness (IEC) has risen considerably (Figure 1.4), from 3.3 in 1980 to 5.9 in 2010 (range: 1–7). Unlike EF, however, the IEC gap with ROW seems to have virtually closed. At a sufficiently high level of IEC, furthermore, a country could be viewed as having attained growth-enhancing ‘advanced-level democracy’3 (Fosu 2008).
Figure 1.3 Comparison between economic freedom (EF) in sub-Saharan Africa (SSA) and the rest of the world (ROW) 1975–2010
Figure 1.4 Index of electoral competitiveness (IEC)
Similarly, the degree of constraint on the executive branch of government (XCONST)4 has increased steadily more recently (Figure 1.5). XCONST began to accelerate in SSA around 1990; the gap with ROW had narrowed substantially by 2000, although it remains significant and little changed since then. Indeed, the gap in 2012 was the same as that in 1975, when the data was first available. At 0.9, that constitutes the narrowest gap over the entire period of 1975–2012, however. The widest gap occurred in 1989, which was double that in 2012. Thus it is worth emphasizing that Africa has indeed made considerable progress on executive constraint since the late 1980s.
But why is XCONST important as an institutional variable? According to Fosu (2013b), XCONST can accentuate the likelihood of a ‘syndrome-free’ (SF) regime,5 independently or by mitigating the potentially pernicious effect of ethnicity. Further, SF is necessary for sustaining growth and is ‘virtually a sufficient condition for avoiding short-run growth collapses’ (Fosu and O’Connell 2006: 31). Moreover, growth collapses have historically reduced Africa’s annual per capita GDP growth by about 1 percentage point (Arbache and Page 2007). This amount is not paltry, given that the growth averaged 0.5 per cent for African economies during 1960–2000, and the growth gap with ROW was roughly 1 percentage point (Fosu 2010d). Thus avoiding growth collapses is quite crucial, and XCONST appears to constitute an important antidote in that regard. Hence, improving political governance by raising XCONST should accentuate SSA’s growth sustainability.
Figure 1.5 Executive constraint (XCONST)
The evidence then supports the view that institutions have improved in Africa in recent periods. Furthermore, the improvement appears to have supported increased growth. But has that growth also been transformed to improved development outcomes? I take up this issue next.
Development outcomes
Consistent with the above growth evidence, per capita purchasing power parity (PPP)-adjusted GDP stagnated during the 1980s and early 1990s, but has risen considerably since then (Figure 1.6). Indeed, GDP per capita rose by nearly 60 per cent, from 1,192 PPP-adjusted 2005 international dollars (PPP$) in 1996 to PPP$1,884 in 2012.
Furthermore, human development appears to have accelerated between 2000 and 2010, compared with the previous decade (Figure 1.7). The human development index rose by 0.063 between 2000 and 2010, 3.5 times its rise between 1990 and 2000. Nonetheless, the 2012 value is still a little below the medium human development value of 0.500.
In addition, poverty has been diminishing in SSA since the mid-1990s (Figure 1.8). This evidence suggests that the growth resurgence has been generally inclusive, though better progress on poverty is called for. Decomposing the poverty reduction into growth and inequality changes, Fosu (2014) finds, furthermore, that income growth is responsible for the lion’s share of the progress, consistent with the global evidence (Dollar and Kraay 2002). Unfortunately, the responsiveness of poverty to growth or changes in inequality tends to be small in SSA compared with that of ROW (Fosu 2009, 2010c), suggesting that even greater efforts are required for progress on poverty. One of the impediments is the relatively high level of inequality (Fosu 2010a, 2010b); another, the low level of income (Fosu 2014).
Figure 1.6 Sub-Saharan Africa’s (SSA) mean per capita GDP (PPP) (constant: 2005 US$) 1960–2012
Figure 1.7 Sub-Saharan Africa’s (SSA) Human Development Index 1980–2010
Meeting the challenge of improving development outcomes, then, would probably entail the need to pay greater attention to the initial level of poverty itself (Ravallion 2012). That might in turn require certain social-protection programs that could reduce inequality while raising the level of income of the poor (Thorbecke 2013). In the final analysis, therefore, the roles of growth and institutions cannot be minimized if the efforts in this regard are to be successful.
Figure 1.8 Sub-Saharan Africa’s (SSA) poverty picture, headcount ratio (per cent) ($1.25) 1981–2010
